Demonetisation, GST and JioPhones make a dent in smartphone shipments growth projection

"First half of the year has been slower than expected due to GST and note ban and if JioPhone has some impact, then it will further slow down," said an analyst at Canalys.Gulveen Aulakh | ET Bureau | August 08, 2017, 07:29 IST

NEW DELHI: Smartphone shipments in India this year are set to grow at the slowest pace so far due to the after-effects of demonetisation, ambiguity during the transition to the goods and services tax (GST) and the upcoming launch of Reliance Industries' 4G feature phone, according to three market research firms.

Singapore-based Canalys slashed its smartphone growth estimate for India by more than half to about 4-5% from its assessment in January. Hong Kong's Counterpoint Technology Market Research reduced it to 11% from 15% earlier and CyberMedia Research lowered it to 5-6% from 10%.

The estimates take into account an expected jump in shipments in the run-up to Diwali in October. JP Morgan expects to see 25-30% sequential growth in smartphone units, 7% on-year, in the July-September quarter in preparation of the festive season which begins earlier than usual this year.

Analysts expect overall smartphone growth to revive only by the second half of 2018.

Reliance will offer a new category of 4G feature phones in September at Rs 1,500 each, refundable after three years, and Rs 153 a month. Analysts said this may push users of basic phones, which start at about Rs 700, to JioPhones, lured by content such as movies and music and delaying an upgrade to smartphones, which start at about Rs 2,500.

"First half of the year has been slower than expected due to GST and demonetisation. Growth should pick up in the second half but if JioPhone has some impact, then it will further slow down the transition to smartphones," said Rushabh Doshi, an analyst at Canalys.

The research firm projected India's smartphone shipments at 117-118 million for this year compared with 123 million estimated in January.

"Taking into account JioPhone, this year will be slowest for smartphone growth ever in terms of year-on-year growth," Doshi said, noting that the fastest growth was in 2013, when shipments more than doubled.

The research firm said a week ago that the Indian smartphone market contracted for the first time in the April-June quarter as shipments fell 4% on-year to about 27 million owing to confusion in anticipation of the GST regime, which started on July 1, bringing in all indirect taxes under one umbrella.

Ahead of the introduction of GST, retailers and distributors had stopped stocking inventory in June, while some brands lowered production to mitigate risks of over-stocking and underselling.

"GST will have a bearing and we are expecting JioPhone will have some impact," said Faisal Kawoosa, a senior analyst at CyberMedia Research. The research firm is lowering its initial projected shipments of 125 million smartphones in 2017.

Kawoosa backed Doshi's view that smartphone growth this year would be the slowest.

Counterpoint Research scaled down its shipment expectations from 135 million. International Data Corporation India said it will retain its projection, which was already conservative.

"We have always maintained our growth outlook for 2017 to be around mid-single digits on top of 109 million phones in 2016," said Navkendar Singh, a senior analyst at IDC India. He said JioPhone may have a limited effect because both the device and access pricing are high for an average feature phone buyer.

Singh said the smartphone market's growth will continue to be slow for a few more quarters and expects the high growth to return by the second half of 2018, a view backed by most analysts.

"We can expect things to change in second half of 2018 because about 150 million 2G or 3G phone users will move to 4G," Counterpoint's Tarun Pathak said.

Some companies attribute the slowdown to the base effect in a country that is already No. 2 in smartphones, behind China.